May 1, 2000

The views expressed are
those of individuals and do no represent official US intelligence or policy
positions. The National Intelligence Council routinely sponsors such unclassified
conferences with outside experts to gain knowledge and insight to sharpen the
level of debate on critical issues.

Summary

In a recent conference, trade experts identified three
primary reasons the World Trade Organization (WTO) failed to launch a new trade
Round at its December 1999 Ministerial. First, leading members were unable to
resolve differences on critical issues prior to the gathering. In addition,
many developing countries and nongovernmental organizations were more assertive
than they had been at previous conferences. Finally, in recent years, the WTO
has expanded the range of issues it addresses, which has made efforts to reach
a consensus on any point more difficult.

According to the speakers, as a result of the acrimonious
Ministerial, the WTO has suffered a substantial loss of credibility, which will
impair efforts to launch a new Round in the near term. There is no immediate
alternative to strong US leadership, and WTO negotiations will be more complicated
because developing countries and nongovernmental organizations will be more
inclined to resist trade liberalization efforts that they believe do not advance
their interests. Experts at the conference offered a variety of assessments
regarding the course the WTO might choose to follow this year. The majority
argued that if the trade body is seeking to rebuild confidence, it could continue
with scheduled meetings on agriculture and services and use the time to rebuild
confidence. A minority, however, held that the forum is too fractured to make
progress, thus talks would only undermine the already declining prestige of
the trade body.

The experts identified several long-run challenges that
the WTO will probably need to address to be an effective decisionmaking institution,
including:

Bridging the developed-developing country gap. Costa
Rica, Mexico, and South Africa generally support trade liberalization and have
credibility among developed and developing states; thus they are in a position
to meld the interests of the two sides.

Enacting institutional reforms. The organization's
expansive agenda and large membership require that it adopt policies that facilitate
decisionmaking, especially before new members such as China and Russia join.
The trade body may try to increase transparency to promote greater trust in
its procedures. Also, to avoid protracted and bitter selections such as the
forum suffered last year, the WTO could review its procedures for electing a
new director general.

Managing the backlash against globalization. Supporters
of freer trade could launch a massive educational program to highlight the gains
for all countries from expanded trade and to counter the dire assertions made
by nongovernmental organizations (NGOs).

Overview

In the aftermath of the controversial WTO Ministerial in
Seattle that ended in December 1999, the National Intelligence Council and the
Department of State's Intelligence and Research Bureau- in consultation with
the Economic Security Group of the Central Intelligence Agency-hosted a one-day
conference of US Government officials, former trade negotiators, academics,
and trade experts to examine prospects for negotiations this year. The conference
addressed three main topics. First, participants identified the lessons that
various countries derived from the Ministerial. In the second session, attendees
examined how the lessons from Seattle and other factors would combine to promote
or discourage progress on trade negotiations this year. The conference concluded
by looking further down the road to analyze larger issues the WTO will face
in its efforts to be an effective decisionmaking body regardless of its record
on trade negotiations this year.

Session I: Lessons Learned From Seattle

The experts analyzed what the Ministerial revealed about
the dynamics of international trade negotiations. In general, they agreed on
three primary factors that prevented the Ministerial from launching a new trade
Round.

Lack of Major-Power Coordination

Perhaps the single most important reason for the collapse
of the Ministerial was the failure of leading states to iron out differences
on key issues, such as agriculture, prior to the conference. For its part, the
European Union was preoccupied with internal matters, which slowed efforts to
develop a unified EU position on WTO-related issues. Another reason for the
absence of coordination between major players was, according to some participants,
that EU delegates consider resisting expansion of US influence to be one of
their negotiating objectives. Thus they will challenge the US on trivial issues
simply to complicate talks. This tendency among EU states has become more pronounced
over the last year as the Eurodollar has established itself in international
financial markets and has begun to enhance economic growth in Europe.

Participants also expressed concern that many countries
may not be willing to commit to a new Round during a US election year, fearing
another failure should the United States not show flexibility. They also have
expressed concern that agreements made by the current administration may not
be endorsed by the next.

More Assertive NGOs and Developing Countries

Regardless of the level of cooperation among industrialized
countries, developing countries and NGOs were poised to be more aggressive than
in previous negotiations.

Developing countries-even small states like Bolivia
and the Dominican Republic-were more assertive in part because the expansion
of the WTO agenda has increased the likelihood that a member will find issues
that it views as important to its national economic interests. ASEAN countries
in the Cairns Group were disappointed with what they perceived to be slow
progress on agriculture and were not inclined to discipline their developing
country partners. As a result, the already complex negotiations became more
tangled.

NGOs are now more inclined to see the WTO as unrepresentative
of national populations, and the emergence of the Internet has increased the
ability of these transnational organizations to coordinate their activities,
publicize their agendas, and mobilize support.

Although panelists agreed that the Ministerial would have
failed even without the headline-grabbing demonstrations, NGOs and developing
countries now believe they have blocking power within the trade body and are
likely to continue to be assertive in future negotiations. For example, recalcitrant
developing countries, such as Pakistan, have been emboldened by what they view
as their successful resistance against US initiatives on labor and the environment.

The WTO: A Victim of Its Own Success

The WTO arguably has been the most successful post-World
War II multilateral organization, given the dramatic progress in trade liberalization
and expansion of trade. Consequently, policies that have failed or languished
in other fora have been pushed onto the trade body by representatives who want
to see more progress. Chief among these is the move to establish global standards
for labor, including the treatment of children. The WTO has even taken on issues
that have no formal representative body, such as those concerning the environment.
This "mission creep" within the WTO, however, has left it with a sprawling
and unfocused agenda that makes reaching consensus extremely difficult. To generate
interest in the talks, the United States wanted an agenda that had something
for everyone but was not so loaded that it became unwieldy. One participant,
however, noted that starting with a huge text that had to be pared back created
a dynamic in which many countries felt as if they were having to give up positions.
Another speaker cited competition policy and investment as issues that would
be difficult for the WTO to tackle now. Some presenters suggested that enhancing
the role of other international organizations, such as the International Labor
Organization on child labor issues, could help the WTO consolidate its agenda
and clarify its mission.

Several panelists indicated concern about a severely weakened
WTO.

They argued that the protracted and rancorous election
last year of a new director general delayed the organization's preparation
for the December meeting. The election embittered many members and made "green
room" discussions-small working group meetings of select members-in Seattle
more contentious.

The WTO is in danger of losing the support of the business
community-traditionally one of its key backers-because there are growing doubts
in the business community as to whether the WTO can deliver on its agenda.

During the question and answer session, the most spirited
discussion centered on opportunities for the WTO to repair its damaged credibility.
The majority of speakers judged that discussions on the built-in agenda could
serve as confidence-building exercise. They were concerned that canceling scheduled
talks would send the wrong message and could encourage some countries to backtrack
on commitments.

A vocal minority argued that the organization is in
grave danger because it lacks vision and direction, and thus any talks this
year are doomed to failure. Consequently, launching a new Round this year
might not be fruitful, given the risk that any negotiations would only further
undermine the tattered prestige of the trade forum. Instead, key industrialized-country
leaders might be better served spending the year consolidating their domestic
support before moving forward with new talks.

Session II: Near-Term Prospects for Trade Negotiations

In the next session, experts examined countries' views
on the prospects for progress on trade negotiations and signs of flexibility
in members' demands. The first presenter declared that the greatest threat to
progress this year is a weak and divided Quad (a quadrapartite group comprising
Canada, the European Union, Japan, and the United States) that invites irresponsible
developing countries to try to fill the political gap. Pakistan, in particular,
is becoming more assertive and is leading a like-minded group of developing
countries that is trying to delay and extend deadlines for trade reform.

He outlined a three-pronged strategy for reviving negotiations
that featured promoting alternatives to Pakistan, continuing with scheduled
talks, and moderating Quad positions. He noted that:

Several emerging market countries-such as Costa Rica,
Mexico, and South Africa-generally support trade liberalization, have credibility
among both developed and developing states, and thus are in a position to
bridge the interests of the two groups.

Although significant progress on trade liberalization is
unlikely this year, continuing with the scheduled talks on the built-in agenda
could keep countries engaged and decrease the possibility of a rollback of hard-fought
reforms.

There are steps Quad members could take to create a climate
in which developing countries are more willing to compromise; in particular,
Japan could relax its stand on multifunctionality in agriculture; the European
Union might choose to moderate its position on agricultural supports; and the
United States could tone down rhetoric on labor and be more flexible on antidumping.A second expert analyzed the role of Japan in the WTO. He
argued that the Japanese delegation left the Ministerial with a sense of relief
and glee. They were relieved that, because of the chaos of the conference, Japan
was not pressed hard on its multifunctionality position and had not been put
in a position of having to fold under US pressure. At the same time, they were
delighted that the conclave had been a public relations disaster for the United
States, because increasingly Tokyo has been chafing at what it views as Washington's
triumphalism while Japan's economy falters.

The speaker also argued that Japan will continue to press
the United States to moderate its antidumping position, but this objective is
not as important to Tokyo as protecting its agricultural position. Although
last year Japan passed its first agricultural law in 38 years-legislation that
emphasized the need for fairness in agricultural imports-it is not likely to
soften its position in the WTO. Instead, Japan will probably seek a long-term
alliance with the European Union to blunt US pressure on agricultural liberalization.

Another speaker gave a more sanguine assessment of the
prospects for progress on services. His thesis was that services negotiations
will continue as though Seattle had not occurred, because of nearly unanimous
agreement to work from the Seattle text on services. The General Agreement on
Trade in Services (GATS) Council has been instructed to carry out talks and
work on market access-which was previously relegated to the rules committee-can
be taken up by the council. There is also encouraging support for service reform
from emerging market countries such as India and Pakistan. A concern, however,
is that lack of progress on agriculture might slow services talks given that
several members, such as Brazil, have said that they want strict symmetry of
progress between agriculture and services.

The final presenter was optimistic about the potential
for progress on agricultural issues, despite the December Ministerial. He reasoned
that progress made during the Uruguay Round on agriculture will not be forgotten.
Japan imported no rice prior to Uruguay Round concessions, but subsequently
was able to initiate unpopular reforms to open domestic markets. He argued that
the most significant change since the Uruguay Round is that Japan and the European
Union now recognize that they need agricultural reform. Because of domestic
pressure, however, they will need the cover of the WTO to implement reforms.
This process will take time and we are not likely to see much change this year,
but the prospects for success over the longer term are good.

Luncheon Address: Responding to Globo-Phobia

The luncheon speaker described strategies industrialized
countries might employ to manage the backlash against globalization. He asserted
that earlier this year appeared to be the perfect time to launch a new trade
Round because the US economy is strong, its strength is directly related to
steps the United States has taken to open up to global markets, and the benefits
of openness are being shared across a wide spectrum of income classes. The Ministerial,
however, failed to launch a Round in large part because of widely held suspicion
of the consequences of globalization.

The public has a poor understanding of the benefits
of transnational markets and thus is easily influenced by a small, but well-organized,
minority of critics, largely from NGOs.

International competition is displacing some workers who
have been understandably vocal in complaining that their jobs are going to foreign
workers.

Globalization and the dispersion of power that accompanies
it are viewed as a threat to governance by leaders in many developing countries.

Each of these obstacles can be overcome, according to the
speaker. In particular, he contended, industrialized countries could launch
a coordinated education campaign to make clear the benefits of globalization.
The effort could highlight the gains for consumers of open trade and point out
the large and growing number of US jobs that depend on exports. The education
crusade would be most effective if it acknowledged that keeping US markets open
to international forces will inevitably cause some workers to be displaced in
the short run. As the domestic labor market adjusts, however, workers will have
more stable employment that will exploit US comparative advantages in production
and trade. Indeed, now is a good time to push forward with globalization efforts
because the adjustment process is easier in a robust, full-employment economy.

Session III: Future Challenges

The conference concluded with an examination of the issues
that will present the greatest long-term challenges to the WTO's efforts to
be an effective decisionmaking body. One speaker outlined a broad list of obstacles
the organization will face.

The issues of labor and environment will continue to
complicate trade policy, especially for the United States.

Increasing WTO transparency could help quell suspicions
about its decisionmaking process. Greater transparency and a rising number of
developing countries, however, will make efforts to reach a consensus on any
issue more challenging.

Institutional reforms are needed to streamline the deliberative
process. Attempts early in the Ministerial to allow all parties to speak created
laborious, slow-moving sessions. In the "green room" sessions during
the last few days, however, key countries representing regional blocs did a
poor job of coordinating discussions with their constituent members. The WTO
will be challenged to find a way to allow all members to be heard so that they
will support decisions without making the talks so cumbersome that progress
is impossible.

China's entry will make WTO decisionmaking more complicated
but not unmanageable. Beijing's performance in APEC suggests that China will
want to position itself as a leader of developing countries but will not want
to be seen as a barrier to progress.

The process for selecting the director general creates
enmity. The contentious election process last year undermined chances for launching
a new Round in December. Moreover, the decision to split the term between Moore
and Supachai satisfied no one, and it ensured that Supachai- who remains bitter
toward the United States for not supporting his bid-will be director general
during critical years if a new Round is launched soon.

The next speaker followed with a somewhat more optimistic
assessment of the prospects for the WTO. He argued that the recent decision
on the Bio-Safety Protocol-albeit outside of the WTO-has shown that participants
can compromise on a trade-related issue for the good of the group. The decision
on the United States-Australia leather case, however, has set a disturbing precedent
because the WTO is forcing the losing government to take property from a private
industry to settle the case.

The session concluded with a presentation that raised additional
concerns about challenges ahead for the WTO.

Negotiations on genetically modified organisms (GMOs)
pose a unique challenge to the WTO. The European Union has been leading a
campaign to caution consumers about what it sees as the dangers of GMOs. As
a result, consumer groups-which have long benefited from free trade and supported
liberalization-are becoming concerned about the WTO's power and are leading
calls for protection.

Subnational governments also pose a threat to further trade
reform. Nontariff barriers at the subnational level in countries such as China
will slow implementation of liberalization policies on issues such as services
and intellectual property rights.

The National Intelligence Council

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manages the Intelligence Community's estimative process, incorporating
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to the Director of Central Intelligence in his capacity as head of the
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